A company’s best move may involve buying in an IT vendor’s outsourced risk management services. IT systems and services have been outsourced for many years now. Risk management services in the financial sector have generally involved external outsourced vendor systems and experts. But, value-added services rely upon the deep understanding of the specific business in question. The implementation of key risk management systems bought for the bank and adapted from insurance initially sounds fine; delivery can be something else. Tailoring it for retail banking uses can spell a disaster, it need not be cost-effective in time or money.
Successful risk management initiatives must come from the directors at the strategic planning level. Incremental addition of risk management systems or procedures may prop up the business weaknesses, but they may not cure the structural illness of the organisation. The Barings and AIB disasters showed that the directors either did not understand the target banking business, or were not too bothered to monitor real performance.
A global enterprise dealing in several foreign exchanges requires a central resource for effective internal corporate control. Otherwise, you end up with different divisions in parts of the world with varying standards of business operation and risk. One of these enterprises could have a business failure that could bring down the whole corporation.
A survey of US directors revealed:
43 % of company directors cannot identify, plan for, or safeguard against risk.
36 % do not understand major risks facing the company.
Companies that identify, plan and manage risk reap large potential business rewards. A basic view of corporate wealth formation, and risk horizons, is that it is created by the:
1. Directors’ strategic leadership planning (long term)
2. Traders or fund managers’ profit from tactical market moves (short term)
3. Risk management systems in place and effective (short to medium term)
4. Portfolio or assets of company appreciate in value (long term).

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